In India, the most favoured type of vehicle is a two-wheeler, be it a scooter or a bike. These vehicles provide a much-needed escape from the constant traffic congestion that often affects Indian roads. Nowadays, with the help of various Two-Wheeler Loan lending institutions in the market, everyone can buy a two-wheeler, making it even more accessible.
To comprehend how to obtain a Two-Wheeler Loan with minimal interest, it is crucial to understand the factors affecting a Two-Wheeler Loan interest rate.
Factors that Affect Two-Wheeler Loan Interest Rates –
Several factors influence the interest rate and eventually, the bike or scooter EMI, including:
Earnings: Lenders often require a minimum monthly income for loan eligibility. Furthermore, the stability of your income can also impact the interest rate offered.
Credit rating: Your creditworthiness is determined by your credit score. A satisfactory credit score is necessary for loan approval, with higher scores leading to better loan conditions. Generally, a CIBIL score of 750 and above is deemed favourable.
Employment type: Typically, individuals with steady jobs may receive lower loan rates than those with inconsistent businesses. The goal is to have a stable income and job security, assuring lenders that the likelihood of defaulting on Bike EMI payments is low.
Current debt: If you have substantial existing debt, obtaining easy loan approval may be challenging. To mitigate their risk, lenders might impose higher interest rates to counterbalance the possibility of repayment defaults.
Market factors: Demand and supply forces determine interest rates, while economic aspects such as inflation or recession also influence the rates set by banks.
Now that you are familiar with the factors that affect your loan interest rates, it’s time to look at some tips that will help you get a reduced interest rate in 2023.
Tips to help you get a lower interest rate
Securing a low interest rate for your Two-Wheeler Loan enables more affordable financing for your vehicle and reduces the overall financial strain. Here are a few tips to help you obtain favourable loan terms:
Boost your credit rating
Boosting your credit rating can help you secure a lower interest rate on a Two-Wheeler Loan. Lenders consider a higher credit score as an indicator of creditworthiness, increasing your chances of qualifying for a loan with more favourable terms and lower interest rates.
Shop around and compare the loan offers from different lenders. Go for the one that offers you a suitable interest rate and fits best within your budget.
Choose a lender with whom you have established a relationship
Choose the lender you have been banking with for some time to take advantage of a strong connection and the perks and promotions that banks offer. As a valued client of the bank, they will probably present you with an attractive loan offer for your two-wheeler.
Reducing debt obligations
Paying off existing debt decreases your financial load, positively impacting your credit rating. Furthermore, it boosts the lender’s confidence in you as a borrower, as they recognise you have fewer commitments to concentrate on. As you reduce your financial obligation, you might get less interest rate on your Two-Wheeler Loan, resulting in a more cost-efficient solution.
Show proof of a stable income
Maintaining a consistent monthly income demonstrates a steady cash flow, allowing you to pay your loan instalments on time. Lenders generally favour salaried employees at well-known organisations, which suggests strong job stability. It can lead to getting lower interest rates on your loan. Providing audited financial records that exhibit a solid financial standing and continuous cash inflows can enhance your loan application if you’re self-employed.
Getting co-signers for the loan
Securing a co-signer can enhance your application if you possess a poor credit rating, fluctuating or insufficient earnings, or are unable to meet specific eligibility requirements. When selecting an individual to co-sign your loan, ensure they can easily share the responsibility. Should you fail to make a payment, the co-signer may need to contribute.
To obtain a more favourable bike loan interest rate, opt for someone with an excellent credit score and a reliable income source.
Increase Your Down Payment Amount
You can effectively lower the interest rates by making a larger down payment on your loan. However, it’s important not to exhaust all your savings or emergency funds. If you have sufficient extra funds, this option is a viable way to get a lower interest rate.
Enhance Your Debt-to-Income (DTI) ratio
The DTI ratio shows how much of your income is used up in your monthly expenses. A low ratio (around 30%) indicates you have ample amount left with you to pay off EMIs with ease. So a low DTI ratio can get you loans at lower interest rates. A higher DTI ratio may attract higher interest rates.
Securing a Two-Wheeler Loan can make buying a vehicle more budget-friendly. You can employ several strategies to obtain a lower Motorcycle Loan interest rate from your financial institution. These tactics involve improving your credit rating, maintaining a positive relationship with your lender, minimising ongoing financial obligations, and enlisting a co-signer, among others. Conduct thorough research to select a loan that meets your requirements.